Asset Allocation

Asset Allocation Canada

Over the past year, we have seen Vanguard pioneer an all-in-one asset allocation ETF in Canada, closely followed by a number of other large cap funds in the US, Europe and Asia Pacific. While Vanguard recently launched its offering in Canada, asset allocation ETFs are making headlines around the world. Sources: 7, 12

ETFs are part of an existing set of five all-in-one asset allocation ETFs that will be launched in 2018. Recently, iShares has matched Vanguard’s suite of asset allocation ETFs and now offers a similar offering of five funds. While Vanguard is promoting a one-time ETF portfolio in Canada, BMO’s asset allocation ETF has been launched in the US, Europe and Asia-Pacific. Sources: 5, 8, 13

One big advantage of ETFs is that they are regularly rebalanced to maintain asset allocation targets, which can save investors a lot of time. In fact, there are many options for investors who want the same asset mix across all accounts but do not want the hassle of monitoring and rebalancing their portfolios. You can select a single share, bond or bond from a larger account to fill the asset class, or you can add different asset classes (see below) to put together four or five fund portfolios. The cheapest and easiest way to do this is to build a total portfolio of just one fund, with a small number of shares and bonds. Sources: 6, 7, 9, 10

If you are a veteran or are just starting your investment journey, this can make the investment process much easier and cheaper – more effective. ETFs offer investors a complete global index portfolio, with the advantage of asset and geographical diversification. By offering a diverse portfolio of international equities and bonds in a low-cost product, an asset allocation ETF facilitates the building of a diversified portfolio rather than buying a single ETF. Sources: 7, 12, 15

When it comes time to choose an asset allocation mix, we will first talk about the three main asset classes: equities, fixed income, and bonds. Once you have selected your asset allocations for your portfolio, you must decide which investments you want to hold, as each represents a different asset class. ETFs can be held in a variety of countries around the world, allowing investors to diversify across asset classes and geographies. Each additional asset class you add offers significant diversification and benefits to the portfolio. You can start with a portfolio of international equities, bonds, currencies, commodities and commodities derivatives. Sources: 0, 9, 12

Most investors won’t have to worry too much about asset allocation, but if you really want to spread your assets, you’ll need to buy some broad-based funds again. If you buy American funds and you have a high concentration of resources in the financial markets, then you should be fine. Markets are not diversified enough to offer investors a truly diversified portfolio, so buy less of a broader fund again. Sources: 0

For young professionals who are starting a small account, I suggest starting with an asset allocation of 1% to 2% of your total assets. If you are using index funds (ETFs) in particular, check your portfolio and compare it against a home-made fund. One fund in the portfolio falls within the target date for balancing an investment fund against the other outside the target date. Sources: 6, 9

The return is used to illustrate the effect of the compound growth rate, but is not intended to reflect the actual return on an investment over a period of time (i.e. the return on investment). Sources: 4

Assessing the answers to the two questions above will go a long way to deciding how exactly you invest in your portfolio and what kind of asset allocation you want. Finally, let’s see how you can maintain your BMO asset allocations and ETFs. If you have any questions about how to choose the right Vanguard asset allocation for your portfolio, please use our contact form. Sources: 1, 3, 13

Asset allocation is exactly what you think is right, and it basically depends on how much you should have in cash and where you put your money in your portfolio. This means that if you are looking for an ideal asset allocation, the easiest and most effective solution is to hold exactly the same 60 / 40% of your portfolios. Understanding what asset allocations are and how to use them can be crucial in building your investment goals. Sources: 0, 2, 10, 11

We have built up a three-fund portfolio by first selecting a suitable asset allocation (equities, bonds, etc.) and then dividing the equity allocation into national and global. Sources: 6

Look at Peter’s portfolio and determine how much of the portfolio is assigned to each category from a dollar perspective and percentage perspective. These funds are called ‘funds’ and we categorise our investments into three categories: equities, bonds and global equity funds. The five asset allocation ETFs are a total portfolio invested in the underlying core Vanguard ETF. Balanced exchange traded funds (ETFs) (also known as “asset allocation funds”) are balanced investment funds but are managed passively, have a lower MER and are the equivalent of balanced investment funds. Sources: 6, 8, 14, 16

Cited Sources

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